Singapore Office Rents Set to Surge in Late 2014: Southeast Asia

Buildings in the central business district stand illuminated as the sun sets in Singapore. Office rents in the business district rose in the past three months, the first gain since the fourth quarter of 2011, according to brokerage Colliers International. Photographer: Nicky Loh/Bloomberg

July 19 (Bloomberg) -- Singapore’s office rents are
expected to surge at the end of 2014 after extending a
“modest” rebound that started in the second quarter, according
to the biggest office trust in Asia outside Japan.

The recovery will be led by companies seeking to set up
regional headquarters in Singapore as they face the lowest
supply in office space in two decades, Lynette Leong, chief
executive officer of the manager for CapitaCommercial Trust,
said in an interview in Singapore yesterday.

Office rents in the business district rose in the past
three months, the first gain since the fourth quarter of 2011,
according to brokerage Colliers International. Singapore’s
economy rose an annualized 15.2 percent last quarter from the
previous three months, the fastest pace in more than two years,
as services strengthened and manufacturing rebounded.

“I don’t think we’ll go back to the peak we experienced
before the crisis, not so soon, anyway,” said Leong, who
predicted a rebound in Singapore’s office rents in January.
“Given that the supply is going to be very limited in the next
three years, it will be quite sharp at the tail end. Towards the
end of 2014 will be a very strong year.”

Singapore, a country smaller than the size of New York
City, is drawing more companies as rents dropped in the past
year. The city’s office costs slumped 16 percent in the past
year, the most globally, according to a CBRE Group Inc. survey
last month, making it cheaper than Asian locations including
Hong Kong, Shanghai, Tokyo and Mumbai and Sydney.

Limited Supply

Leong estimates that Singapore’s annual supply of new
office space will be lower than 1 million square feet in the
next three years, down from the average 1.3 million square feet
over the past 20 years.

“As we come to a point in time with very limited supply,
we’ll see a sharper growth in rents,” she said in a Bloomberg
Television interview with Haslinda Amin yesterday.

CapitaCommercial Trust fell 1.7 percent to S$1.45 at the
close in Singapore, extending the decline this year to 14
percent, compared with the 3.5 percent drop in the measure
tracking real estate investment trusts in the city-state. Half
of the 24 analysts tracked by Bloomberg have buy
recommendations, with four advising investors to sell.

“With key grade A buildings still under-rented, we expect
positive reversions in 2014 and 2015, especially if market rents
trend up,” Chong Kang Ho, an analyst at BNP Paribas Securities
Singapore Pte, said in a July 17 report reiterating his buy
recommendation on the stock.

Seeking Acquisitions

CapitaCommercial Trust is seeking acquisitions in Singapore
and has “a lot of financial flexibility,” Leong said. The
trust’s loans are 28.9 percent of assets, which gives it a S$1.2
billion ($948 million) “debt headroom” to fund purchases if it
increases its borrowings to 40 percent, she said, adding that
“it has to be a compelling acquisition.”

CapitaCommercial Trust has 76 percent of its borrowings on
fixed interest rates, which helps it hedge against any increase
in borrowing costs, the trust said. It may seek to raise that,
depending on its outlook for lending rates, Leong said.

“We are very encouraged by the recovery of the office
market,” Leong said. “Right now, what we’re focused on doing
is creating organic growth from leasing out vacant space and
taking advantage of the recovery of the market.”